Designated giving can be an incredible blessing for your church. It allows, for example, church members to give to such areas of passion as missions or facilities. But far too many churches are handling designated giving in ways that can get them in trouble. That trouble can range from morale problems among members and staff to losing your non-profit status with the Internal Revenue Service.
I’ve had many conversations with church leaders about this issue. Designated giving questions are common at Church Answers. Over the years I have seen five ways designated giving can get churches in trouble.
1. Accepting a designated gift that personally benefits the donor. Here are two real examples from the past few years. In one church, the members would “donate” to the mission fund and then get their mission trip paid by that same amount. That is a big no-no from the IRS, and should be an ethical problem for the church. In another example, the pastor asked me if a member could donate scholarship funds that would in turn be used to pay the member’s daughter’s tuition. No!
2. Accepting a designated gift for a preferred ministry of the church by a member who was not happy with the church’s budget. Indeed, I know personally of a situation where the worship leader encouraged some members to designate all of their gifts to his ministry, a ministry he felt was underfunded. While this practice is not necessarily illegal, the church is under no obligation to accept this workaround giving.
3. Accepting a designated gift for any good cause. Churches should not be a tax-deductible conduit for any and every cause. If someone wants to donate money, for example, to fund underprivileged children in the community, point that person to find another charitable agency whose purpose aligns with the giver’s desires. There are many good causes, but the church is not a funnel to distribute funds outside of its purpose and mission.
4. Accepting a designated gift for the building program with specific conditions for how the funds will be used. It is great that the church has a building fund. But church members should not have the prerogative to say how their funds will be used in the building. One church member, whose gift to the building fund was ultimately rejected, had demanded that her funds be used specifically for a certain type of stained-glassed windows.
5. Accepting a designated gift that is a form of blackmail. “If you don’t use these funds for this purpose, then I am withholding all of my funds for the church.” If someone makes such a demand, let them walk. You may worry about your budget for the short term, but you will have fewer problems in the future. The church should never yield to someone who tries to hold the church financially hostage.
I recommend to all church leaders to establish funds where they are willing to accept designated giving. Any gifts that fall outside of those funds should be politely declined. Not all church members who give designated funds do so with nefarious intent. They will likely accept your explanation that the church’s financial structure is established to accept only designated gifts in pre-approved funds.
If they respond negatively, you likely had a problem on your hands anyway.
Stay out of trouble in designated giving. It’s not worth the money you might lose.
Posted on May 31, 2021
With nearly 40 years of ministry experience, Thom Rainer has spent a lifetime committed to the growth and health of local churches across North America.
More from Thom
Added to the complexity of designated gifts can be the deductibility of the gift. Once a stipulation for a specific thing is in play the donation approaches the borderline. In theory, a gift to a church must be for use at the discretion of the church, at least within reason. If someone gives to “the building program” or for a specifically named need “a new roof” there is no question that the church has complete control over the funds received. If the donation is designated for a self-chosen program it might not be.
Well said, Les.
Excellent advice but I am curious about how giving to a missions fund would then disallow use of those funds for an individual’s cost for a missions trip. Is the issue that there is a a 1 to 1 correlation in the amount given to the fund and the amount paid for the individual’s mission trip? I think about this specifically in regards to “Benevolence” giving. Our church has a benevolence fund that people can designate gifts toward. The fund exists to first and primarily assist those in our congregation with a demonstrable financial need. Secondly, we have used the funds to help with specific needs in our community (food pantry, homeless care packages, etc.). We have written policies around disbursements from this fund to our church members and attenders. Are you saying that if an individual in the congregation has given to this fund, and they then have a demonstrable financial need, we would not be able to disburse funds to them? Or is the issue simply that we cannot issue a 1 to 1 disbursement from the fund?
The simple issue is one of personal benefit. If it is a gray area, it becomes an IRS interpretation. Yes, I would think giving an amount and receiving an identical benefit would be a clear demonstration of personal benefit. In another scenario, the church member may contribute $1,000 to the mission fund every year and receive a $500 benefit in the same years. That too could be construed as personal benefit up to $500.
As an example of another nonprofit beyond the church, I donate to my alma mater each year and I buy season football tickets. The school is clear in their policy that I cannot receive a tax benefit for the contribution I made to be eligible for the season tickets because I personally benefit.
I would suggest if you have any doubts, err on the side of caution.
They are NOT stain glass
bur stained glass